Are you sort of a symbol of the new executive that is now controlling
things in adult entertainment?

I think I am kind of a symbol of where this industry is going. It is an
industry that has opportunity for people like me, so of course I moved over
here.

Where is the industry going?

The adult industry is going to be more accessible to the consumer. It's
always been very popular. People want it, but yet it was hard to get it to
them. People didn't want to go to the back of the video stores and to the
little theaters that people had to go to. Now, with television and computers,
etc., it's accessible.

Let me take you back to the first days when you walked into this
business. How long does it take before the product becomes to you more like
just a "product." I mean, to most people out there this is pretty spectacular
stuff--

Not very long. One thing about the adult entertainment side of the
business as opposed to mainstream is it really isn't any different from a
manufacturing company or any other company. These companies now are large
enough and complex enough that as the president of a company, what you're doing
is handling PR and marketing and distribution and manufacturing costs and
budgeting and all the things that you would do at any other company.

So I'm actually not at the set of any movies. There's many layers between
myself and all these different portions of the business. I think that's true
of a lot of the larger companies in our industry. So, as the person who runs
the company, it's very easy. It's really no different than what I was doing
before.

Asher is president of Vivid Entertainment Group, an adult-video production
company. Vivid, which produced 80 new films in 2001, spends up to $100,000 on
its features. Its films are distributed via cable and satellite pay-per-view
channels, on VHS and DVD, and online. Here, Asher discusses Vivid's customers,
the company's biggest future growth area, its interest in going public -- and
whether Wall Street is ready to jump on board. He also talks about the potential impact
on the adult industry if the Bush administration cracks down on pornography.
This interview was conducted in July 2001.

How do you explain it to your mom and dad? I mean, personally, how
do you sort of deal with that?

Well, in my case, I had dinner with my parents and my sister and I said,
"This is what I'm going to do, and the reason I'm going to do it is it's a
legitimate business, it's product that people want, it is great growth
opportunity, it is all the things you look for in a job. And if you remove the
words adult entertainment, or remove the word adult and just make it
entertainment, this is a very noble business."

And you have to explain that to your parents. And my parents, fortunately,
are wonderful, supportive people who said, "Look, you've obviously thought
about this, you're comfortable with this, and if you're comfortable with it, we
are, too."

The numbers that have been bandied around are somewhere between $4 [billion] and $10 billion, generally. And I know that portions of the estimate of $4 billion are low. Ten billion is probably high, but it depends on, also, what
you group into the adult industry. Technically [it's not just] videos and DVDs and television and
Internet, but it also includes everything from strip clubs to magazines. I
would say that with any definition, it's about $4 billion. ... I would say that it's probably less than $10 billion right now.

The key, though, is the growth factor. If you look at what was there
three years ago, it's probably half of what it is now. Where will it be three
years from now as distribution access grows?

And all of a sudden you have Internet and broadband, and once video can be
seen over the Internet without the choppiness, that's when you're going to see
it grow by five times in a year. Particularly when you add in what's happening
internationally. Right now when we talk about this number, we're talking about
domestic number, predominantly. The rest of the world is taking off in terms
of entertainment, in terms of accessibility, in terms of technology. And
that's going to be a huge growth area for businesses like my own.

Why is it doing so well?

Well, it's relatively recession-proof. I mean, people want it. As a matter
of fact, it's entertainment that, if you can see it in your home, it's cheaper
than going out and taking a huge family to the movies or going to the ballpark.
It's not really an expensive proposition, for adult entertainment again is just
distribution. Can I get the product to the consumer? You know, it used to be
that someone would have to rent a video in the store, and before that it was a
movie theater. Now, as television comes into the home, the privacy of your own
home, there's no embarrassment factor, there's no issue with privacy. The
Internet is a personal technology and that's very well suited to adult
entertainment.

Who buys it, and what do they want?

Well, not all adult programming is created equal. Definitely there are
niches in this industry like with anything else.

Who do we appeal to? A large portion is couples, there's women, there's
men, I mean, that is our area. And it's really more, like I said, the
mainstream. There are people out there who are clearly targeting young males.
There are those out there who are clearly targeting women, more romance, more
storytelling, there are those who are targeting older people, older men
specifically.

So there's not really one specific group that buys or watches adult
content, but clearly what we are seeing is the younger group--

Young people meaning what age group?

The biggest growth areas are the twenties to thirties, younger people who
grew up in a period of time, whether it be the '60s and the '70s, whether it be
in the era of Bill Clinton and the things that we all got used to watching on
the news with Monica Lewinsky. You have people who are very, very comfortable
with adult content. If they don't want to watch it, that's a personal choice.
A lot of them, if they choose to watch it, aren't uncomfortable with it at
all.

What is Vivid, and what does it consist of?

The company Vivid is really based on the production of movies. In the
past, the leaders in the "adult" field were Playboy, Penthouse magazines,
print operations, if you would. What's happened over time is that people's
taste has turned more toward the moving picture, as you well know. Also print
magazines are more expensive to print, to mail, etc. There's
really been a shift in the adult industry towards the video side of the
business.

What we do is we produce approximately 80 movies a year, full-length
feature movies. We distribute those movies on video, VHS, DVD. We have
Internet sites. Up until recently we had television channels domestically and
internationally. Our international business is growing in 30-some
countries with all its new products. So we're really just like a studio. What
does Paramount do? They produce content, they distribute it through all the
different platforms.

Internet sites?

We have a number of Internet sites. In the adult industry it's not odd to
have quite a few Internet sites, with everything from different fetishes, aimed
at different markets, if you will. How important is it to us? It's
approximately 25-30 percent of our business right now. The key
is, it's the growth area, it's the thing that's taking off. I mean, obviously
what people want to see, through the Internet or on TV, is quality moving
pictures. Right now, as you know, even with a high-speed modem, they're still
somewhat choppy and have a tendency to drop off. So, in the next few years, as
video can be streamed better, that's when you're really going to see that
business take off.

There was a lot of talk a year or so ago that Vivid was going to go
public.

About a year ago we were looking at going public. And there was quite a
lot of interest. One of the reasons we did it was we wanted to see the
feedback from, primarily, the financial institutions. We'd also met with
underwriters, we'd had a lot discussions, we tried to get a sense of whether or
not an adult company at this time could go public, whether or not we could draw
the kind of investment that we needed to draw, whether or not it would be more
of a niche kind of a public offering.

We certainly didn't want to do what others have done in the past, which was
simply to merge the companies into already-public companies. We wanted to roll
it out. We wanted to be very public about it; this is what we do, those who
are comfortable with it, invest in us if you believe in us. If you don't feel
comfortable with our product, fine, we certainly understand.

As a matter of fact, what we found was that some investors liked the idea
that maybe other investors weren't going to get into this marketplace. Maybe
they could get a good price, maybe we could buy up more stock. So we had an
incredible response. Of course, what happens, as everyone knows, is that the
IPO market, the bottom fell out.

Now, granted, those were mostly dotcoms who weren't really producing any
kind of profits, whereas all of our businesses do indeed create profits.
They've all been profitable for a number of years and we have good solid
margins.

So our numbers were what the investment community was really interested in.
They liked the fact that we had a business that was really producing profits,
tied to technology but not reliant on technology, that we had a base in the
video and DVD and television business with huge growth potential
internationally and on the Internet side.

So the only reason we haven't gone public is simply the marketplace.

Is the investment community ready to jump on board?

Some are, some aren't. And the nice thing about it is we've been able to
sit down with all of them. Nobody has turned down a meeting with us, but
they'll also be very frank and say, "This is not where we want to go right now.
This is not the image that we want to be associated with." Others are very,
very excited about it. And it really is on a case-by-case basis.

The political situation in Washington, with a more conservative
administration, does that affect the way Wall Street might view getting
involved in something like this?

... As adult content goes we are very mainstream, and in a sense
we're not the people that really have something to worry about within their
administration. I don't know who are the folks necessarily that the
administration would be looking at, if they look at anyone, but it's never been
sensed that it would be us.

What does it mean that this industry has gone mainstream? Is Vivid
mainstream? And what does that mean?

Vivid is mainstream in that there's a large percentage of the population
who enjoy our product, who are comfortable with it, who want the distributors
to distribute our product, whether it be cable systems, whether it be video
stores and DVD stores, etc. There's a lot of people now who are looking
for this content and who are buying this content. I mean, in the old days there
was the perception that it was old men in raincoats. And certainly now if you
look at the demographics of our buyers, this is a broad spectrum of the United
States.

We've sold our domestic television operations to Playboy. On the foreign
side -- which is one of the growth areas -- we are still launching new television
networks overseas, we are selling content, as I said, in about 30 countries. So for us, what we've really been able to do is monetize, get our money for the domestic side of the business so that we can now invest that money in the international side and on the Internet side.

Which you think is the growth area anyway.

Correct.

And what was the variety, basically, that you offered them on the TV
channels?

What we offered on the TV side was, it could be as simple as a more-edited
version of films, literally meaning that it was more the plot, the sensuality,
rather than the sexuality. We wouldn't show graphic content, you know, meaning
explicit content. And then we had over movies that we'd literally, you know,
we showed almost the version that you would see in the video store that
contained anything that people wanted to see.

Before you sold to Playboy, how many households were you getting
into? Do you have all the numbers for that, roughly?

Our three networks, at the time when we sold them, were in around 40 million households. ...

Is there any way to judge how many of those households would then use
the service?

Well, what we know is not necessarily which households -- again, privacy is
a very big factor in our industry, and even we chose not to know, you know, who
exactly had it. What we did know was how many times. This was all
pay-per-view, so that meant that if somebody wanted to watch a movie they could
tune in, turn it on, watch a movie or watch two movies in a row, then it would
turn off again.

So we did know what's called a buy rate, which is for every million homes
you're in, in any given month we'll know how many times someone bought a movie.
Generally our buy rates for the networks were between 10-20 percent, meaning that if there's a million homes in a given month, for
every million homes you'll do a hundred thousand, hundred thousand plus
buys.

So 40 million homes you were in and the profit was?

I won't go through all the details of our contract. But that 10 percent buy rate [in] 40 million homes would equate to approximately four million movie buys per month.

How does it work with hotels?

Hotels have what's called video on demand. They have the ability to take a
movie, and they literally take the VCR tapes, so you distribute VCR tapes just
like the packages that you put into your VCR at home. They put them into
racks of VCRs in the basement of the hotel, so that when somebody wants to
watch an adult movie, they click on the first movie on the list, let's say, and
that VCR kicks on and plays it, and it's just like you're watching it in your
own home.

We would go to the major chains of hotels, or actually the in-room
entertainment people who took care of the major chains, and we would cut a deal
with them to sell them a title. Generally they would pay you a flat rate,
although some pay you a percentage of what they took in. They literally would
pay for the cost of producing the costs of the VCR tapes and shipping them to
the various hotels, and that would be how it would work.

Do you have any sort of read off of how many hotel rooms and what
percentage of hotel room clientele were using them?

Well, the usage is much higher, obviously, in a hotel room than it is in
the home, partly because the people in hotel rooms particularly, you know, the
business traveler quite often are there by themselves, they've got time to
kill, so for them it's a wonderful entertainment opportunity. Just sitting in
your hotel room, there's not a lot to do. So the odds are that it would be
three to five times as much per person per month in terms of sales.

So if you're in 100,000 hotel rooms, was there a
mathematical questions of how many hits you'd get for--

Well, the buy rate again, the buy rate on television was like 10 percent,
maybe it would be closer to 50 percent on hotel rooms. I mean, in any given
month, in 100,000 hotel rooms, you might have 50,000 buys.

So it was a profitable endeavor.

For the in-room entertainment companies it is. Their job is to come in and
create extra revenue for themselves and the hotel to operate entertainment in
the room. Right now that's just simply the VCR tapes, if you will. Eventually
that technology will improve and ultimately you're going to have interactive
programming through your computer which you'll be able to hook up in a hotel
room.

And some money is coming to the hotels for providing this
service.

The hotels do well. Again, though, if you're paying $100 for
the room, certainly what you are on average spending on, and the portion they
get for the adult movie is going to be very small compared to $100. The hotel may take a dollar or two from the average consumer. So
percentage-wise it's very small, but it's an important revenue source.

Does the same situation work with cable and satellite providers?
When they send it into the home, do they get a better percentage on adult video
than they do on Hollywood fare?

On the television side, television operators, meaning cable companies and
satellite companies, take approximately 80-plus percent of the adult dollar
that gets spent by the consumer.

Which is pretty large.

It's a very good margin for them. On the mainstream side they're probably
only get about 50 percent. And again, coupling with that the fact that
adult sells for about three times as much per movie to the consumer, they
obviously are very reliant on the adult income. Very important to
them.

An obvious question: Why are they interested in providing this
material at this time?

The reason that cable systems and satellite systems offer our content and
offer our networks is simply a purely business decision. I think in the past
there was always a concern about being the first one to offer anything more
explicit, anything that might draw attention. There was always that very vocal
minority, and I believe it's a small minority, who think that cable systems and
satellite systems should censor what they give the consumer.

Even though satellite and cable systems know that consumers want to see
this, even though it sells very, very well, there's always been a sense from
those companies that they don't want to rock the boat. They don't want to be
the first one to offer the consumer what they want for fear that somebody may
be out protesting them, may have a picket line in front of their company the
next day.

What they found out over time is that because of the changing attitudes in
the country, that when they offer this product, more explicit adult product,
that it sells very well, people are very happy with it, they get phone calls of
congratulations and thank you's. They don't get the protests that they've
expected in the past. Or, when they have gotten the protests, it's been a
very, very small group. ...

How difficult is it for the mainstream folk, at this point, to provide
this product?

I think it is always going to be difficult for large corporations to
distribute adult content. To a certain extent it's sad that's still the
situation and will always be the situation, but there will always be a group of
people who believe that they should have the right to dictate to others what
they can or cannot watch.

When AT&T came on board and sort of carried your channels, when that
decision was made, how important was that to the industry?

It had no impact on our business, because people within the industry
already knew. The other people who might have been able to help us by
distributing our product, they already knew about those other companies
distributing. They already knew how well our product was selling.

... We really have no desire to scream loudly from the top of the
mountaintops to all of the people out there who might a problem with what we're
doing that we've just signed up a large cable system or we've just signed up
with a large company that you know or the DVD or the video side. So, in terms
of mainstream press, it really does us no good to have those things out there
in the mainstream press.

But, as a business decision or as a coup, it was pretty big-time, because
it's not only the fact that it's another cable system, it was like millions and
millions and millions of households.

Well, we've been very fortunate since we took over the TV network that we
took over and we launched two more. About every six months we've been able to
get another large, well-known distributor, to offer our content to their
consumers. And with each one, I think that there is a little more credibility
within the industry.

Is it a possibility, though, that with the more conservative
administration and the directions that they seem to be going in, that the
mainstream folk might be embarrassed out of the business?

When it comes to this administration or conservatives in general who may
or may not be comfortable with what we're doing, the future actually is that it
gets better and better for us. ...

What the future offers is a more secure environment to distribute adult
content, where it only goes into homes that choose it, where it doesn't get in
the hands of children, which is where none of us want it to be. And so I think
when it comes to this administration or any administration in the future, what
they're going to be looking for is for us to use technology to ensure that
those who get adult content choose to have it and want it. I think that's
where it's going in the future, that's why I think this industry has a very
good future.

It would be very strange, in a lot of people's opinion, for a Republican
administration to say that they want to come into your home and start to
dictate, that the government should become more involved in your life and in
your decision-making.

But who do you think they might go after?

Well, do they go after larger people who are more visible, like ourselves?
Or will they go after the very large companies who distribute these? Will they
go after the small companies that make product that is clearly more on the
edge?

My guess is, I don't ultimately think that large companies are going to be
attacked by the administration. I don't believe that a Republican
administration or any administration thinks the American people want them
coming into their bedroom and saying, "You can't watch this. You can watch
this."

On the other hand, will they be able to go after the more fringe product?
I think they might. ...

So, therefore, the Rob Blacks who are in the business, maybe that's where they start ... ?

Well, there's a concern certainly that those people who are making the
fringe content would bring undue attention upon companies like Vivid or the
major distributors. ... I believe in our judicial system, I believe in the First
Amendment, and I'm comfortable with what I make. I don't think what someone
else makes ever will impact whether or not what I'm making is
defensible.

The so-called Cambria List. What was going through the minds of the
industry and how were they sort of setting themselves up to protect themselves
with this list?

Well, a lot was made about a list put out by probably the pre-eminent First
Amendment attorney, Paul Cambria, who works for a number of the larger
companies in the adult industry and is our First Amendment guru. He's the
person that we trust to give us advice on what we should and shouldn't
do.

He created not "a list." There was a lot of discussion about [whether] there was a
list created, [whether] there was some kind of definitive, "This is what you do and
you're OK; this is what you don't do, otherwise you'll get into trouble."
Now, obviously, if a list was created like that and if Paul presented that to
be legal or not legal, he'd certainly be doing an injustice to everyone,
because there is no way to know what is legal or illegal when it comes to adult
content.

Certainly what Paul did do and what we all did do, is that you meet on a
regular basis, you talk on a regular basis to your counselor. You say to them,
"What is the mood in different communities in this country? What is the mood
in one state versus another state towards one type of adult content versus
another?" And then you make a decision, and certainly we have always, always
followed the advice of our attorneys in terms of what has been the approach in
each area of this country in terms of prosecution, and we don't go anywhere
close to that.

What's it like to be president of a multimillion dollar business,
where no one knows what is allowable and what isn't?

Certainly when you start working in this industry it's something you have
to get used to. In adult you literally sit down the first day and you call your
attorney and you say, "Can I do this?" And the attorney gives you a half-an-hour dissertation about what's going on in Georgia versus Minnesota. And at
the end of a half hour you realize you don't know anything more than you knew
before, other than just kind of a general sense on where things were
going.

Everything is gray. One of the things about that, though, for us, is that
from a strictly business point of view it gives us a unique position. After
awhile you know more about it than anyone else.

So on one hand it's very frustrating. On the other hand, I think it's one
of the keys to Vivid being where it is, the fact that we have spent the time
and we have spent the money and we have talked to experts to really understand
what is and isn't appropriate as best we can.

What's your impression concerning the talk about a few people in
Washington who have been involved in meetings with Ashcroft discussing the
laws that are on the books. As far as they're concerned, the stuff that you
produce, that Rob Black produces, the material that's on HBO, what's in
Penthouse magazine, it's all illegal and all of it can be
prosecuted.

Certainly we hear on a regular basis that there are people in Washington
who think that what we do and what's on HBO or anything else, in their opinion,
is illegal, it's obscene. Now, what we all know is that ultimately that's not
up to Washington, it's up to juries, it's up to communities to decide what it
is that they think is and isn't appropriate.

We have to be willing to risk sitting in a courthouse somewhere far away
from where we live, being prosecuted, even though the majority of Americans
would certainly feel that was inappropriate.

If they looked at our content, they would say, "My goodness, this is very
appropriate." Certainly I would assume that what's on HBO most people don't
think is obscene and should be outlawed. But that doesn't mean that you can't
be prosecuted. That doesn't mean that somebody cannot bring a case against
you.

So, even myself, or even somebody who works in my position at HBO, has to
say to themselves, "Am I willing to defend this product? Am I willing to go to
court? Am I willing to invoke my First Amendment rights and believe in the
legal system?" And obviously there is no one, probably, who hasn't thought
about that, who offers any kind of adult content and who hasn't made the
decision that, "Yes, I will. I believe that I have an obligation, as a matter of
fact, to say, 'I'm comfortable with what I do, therefore I will not back down. I will, if need be, defend it.'"

What's at stake?

I'm relatively new to this industry. There are people who have been here
for 20 years and have gone through very, very difficult times back when
they were prosecuting. A lot of people I know have spent time in jail. A lot
of people have spent time in courthouses being prosecuted.

Those people, in effect, are heroes, they're heroes for all of us, because
believe me, the average person would not want to find themselves in that
position. Nobody wants to risk going to jail. But these are people who
believe that somebody has to stand up and allow themselves to be prosecuted,
and they've done it. And like I said, they have paid very extreme
cases.

I don't think, again, that I'm taking a great risk. I'm a businessman. I
have talked to attorneys. I am relatively conservative in terms of
risk-taking. But every one of us in this industry obviously feels a certain
obligation to the First Amendment.

Playboy, why did they buy back the networks from you and was it a
smart move?

Recently Playboy bought our domestic television operations, and it was a
deal that made tremendous sense for both companies.

For Playboy the reason they bought the networks was simply that the
networks were making money, that they were very popular, that they were
growing, that they offered them a chance to secure their position in the
domestic television business, frankly at a relatively cheap price, based on
where the industry was going. They made a decision a couple of years ago not
to go into more explicit adult programming on television. They'd advertised
themselves somewhat as a lifestyle brand.

And that was fine, but what happened was they started to get squeezed from
both sides, the more explicit content on one side, and a lot more lifestyle
magazines, etc., whether it was Maxim or Details or whoever it is.
Ultimately the decision they had to make was where they were going to go. They
decided they were going to go into this growth area. We, on the other hand,
sold simply because of the fact that we were looking to new growth areas.

There's been extreme growth in the past 10 years in this
industry. Tell us what's going to happen in the next ten years.

In the last 10 years what you've seen is extreme growth simply because of
distribution channels' technologies. Ten years ago there was virtually no
adult content on television other than, primarily, just the Playboy channel,
which is very, very soft, and one channel, it wasn't widely distributed,
compared to now. You didn't have Internet. DVD wasn't there.

What's going to happen in the next 10 years? We really have only
scratched the surface right now. If you look at how many television homes are
there in this world, or will there be, how many total homes are there, versus
how many can get adult, we're still a very, very small percentage. The
Internet has really obviously increased that, but again, the Internet is not
the true experience of adult.

What happens 10 years from now when literally, if you believe that we'll
have a wired world to some extent, and the number of homes is five to 10 times
what it is now that are wired with the Internet, and if you can collect and if
you can sell and you can distribute adult content to all of those homes, what
is the total revenue? Right now domestically in this industry it is $4 billion to $10 billion. Where would it be worldwide 10 years from now?

Now, obviously everybody has an opinion, but I think that most people agree
that that increase in distribution is going to offer a huge increase in
revenues for our industry.

So the future is green lights and blue skies?

Well, I think like any industry it really depends on how you position
yourself. It depends on what product you make. It depends on what consumers
you target. And so whether or not it's blue skies and green lights for me is
not necessarily the same as for someone else. But I do think the industry is
going to see tremendous growth.

And finally, the Bush administration is looking for a very different
future. Do you think they will indeed have some effect?

I don't think any one administration in any one country ultimately is going
to impact what happens to adults long-term. Administrations come and go, [but]
there are lots of countries, people in this world. There are always going to
be people willing to produce and distribute adult content.

... How graphic it is and what exactly it is, that always changes, and it
can ebb and flow. It can be the pendulum that we've seen over the last 40
years. But ultimately you're always going to have adult content, there will
always be people who don't like it, people who do love it. And I ultimately do
not believe that we should look to any one administration, one government, or
any one individual and think that person or that administration is going to
have profound impact on adult content.